Microsoft Doesn't Buy Nokia: Good News

Acquisition talks between Microsoft and Nokia recently broke down with no plans to revive them. We should all breathe a sigh of relief.

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Microsoft hoped to buy Nokia's mobile handset business, according to The Wall Street Journal. The talks recently broke down, however, and it looks like the two companies are at an impasse on the proposal.

Price is the most likely barrier between the two companies. There was also some worry about Nokia's position in the market, which is anything but strong. Nokia has spent the last six years steadily losing market share to competitors and there's no sign that it'll regain its former stature any time soon.

Microsoft and Nokia have been close partners since February 2011, when Nokia announced plans to switch from its own, homegrown Symbian smartphone platform to Microsoft's Windows Phone. Though that announcement marked a turning point for both companies, the groundwork was laid months earlier when Nokia's board chose Stephen Elop, a former Microsoft employee, to run the company. Elop replaced Olli-Pekka Kallasvuo, who was blamed for failing to adequately respond to the iPhone and touchscreen revolution.

Elop bet the future of Nokia on Microsoft's then-brand-new mobile operating system. The results have been mixed. Nokia didn't get its first Windows Phone out the door until November 2011, but it now has a range of devices that cover all points from entry-level to high-end. It has support from U.S. operators, something with which Nokia never had much success, and sales are improving. Slowly.

Nokia has become the preferred maker of Windows Phones. It is responsible for eight out of every 10 Windows Phones sold in the market today. Microsoft has given Nokia more freedom to customize its hardware and software around the platform and, to some degree, Nokia is successfully innovating with some features, such as mapping and navigation.

From many perspectives, it makes sense that Microsoft might want to purchase Nokia's handset business. After all, the two work more closely together than Microsoft does with any other Windows Phone OEM. Purchasing Nokia's handset business could give Microsoft the synergies it needs to better compete with companies such as Apple and BlackBerry, which own both the software and hardware associated with their respective platforms. Google bought Motorola last year for much the same reason (though it also wanted Motorola's 17,000 patents). Windows Phone could benefit from that integration between software and hardware to be sure.

But one look at Microsoft's recent hardware flops puts it all into perspective. Consider the Surface RT and Surface Pro tablets. Both have put hardly a dent in the iPad's market share, and are, in many respects, considered to be failures.

Microsoft is a software company and always has been. Running a hardware business is not its core competency, and never will be. There's no way Microsoft could take over a company like Nokia without screwing it up.

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